When a company decides to engage in outsourcing, the selection process, the transfer of the work, and the monitoring of the execution must be well-managed. It doesn't have to be complicated; the entire process can be explained in four simple steps. The steps outlined below are specifically focused on the outsourcing of treasury activities but can also be read more generally.

Step 1: Establishing objectives

The outsourcing company begins by determining its objectives, based on the current situation of the enterprise and its expectations for the future. The company seeking to outsource activities understands its pain points in the treasury field. So, it must be determined whether a company wants support on an operational level and/or on a more strategic level. There is also insight in the ambitions or challenges in the near future. It is important to include the company culture in the considerations. Goals are set based on all this input.

The framework within the treasury must operate is documented in a treasury statute, and the outsourcing of treasury activities must fall within the framework of this statute. Therefore, it must first be checked whether the statue allows the hiring of third parties at all. If this is not the case, this must be arranged first.

The set goals, together with the treasury statute, ensure that outsourcing meets the needs and administrative organisation of the company. The objectives indicate the direction the company wants to take during the outsourcing process, and these objectives are revisited at decision points.

Step 2: Preparation

Once the enterprise knows what it wants to achieve with outsourcing, the next step is to formulate a request. A document must first specify the reason* behind the outsourcing since this guides the choices and agreements a company makes. It should also clearly state the objectives of the outsourcing. Risk management is a crucial part of this process. The subsequent expansion policy should include at least:

• The reasons/objectives for outsourcing;
• An explicit overview of what is being outsourced (and what is not);
• Conditions and selection criteria for the executing party;
• How and when the performance of the service provider will be monitored, using predetermined indicators and reports;
• How and when the relationship between the outsourcing enterprise and the service provider, as well as the outsourcing policy as a whole, will be evaluated.

Part of the outsourcing policy is a selection policy. This sets requirements regarding the reputation, liquidity and solvency, licenses, knowledge level, privacy policy, and security of IT systems of potential service providers. A risk analysis is also recommended. Every external party has characteristics that can introduce specific risks to the enterprise. The risk profile of the external party must align with the risk tolerance of the enterprise.

Curious about possible reasons to outsource your treasury? Read our earlier article ‘Why would you outsource treasury?'.

Step 3: Monitoring

Successful outsourcing can only exist if the outsourcing company does not completely let go of the process. Even after choosing an external party and making agreements with them, it is necessary to maintain sufficient in-house knowledge. This is the only way to continuously monitor and assess the work of the service provider. If uncertainties are not clarified in the preparatory phase, they will be felt in this phase. Remedial measures may be necessary. Making clear agreements with the most suitable party is crucial to prevent problems during the execution of the outsourced work.

The enterprise remains ultimately responsible for the outsourced work, including compliance with laws and regulations. This should be reflected in the contract, especially when defining the responsibilities of the outsourcing enterprise and the service provider.

Step 4: Reporting

Throughout the entire process, but especially in this phase, the outsourcing enterprise and the service provider must collaborate closely to ensure that the outsourced work aligns and continues to align with the established mission, vision, and plans of the enterprise. The purpose of this outsourcing process is to create a new stable organisation in which regular reports are shared, and there is ongoing communication about the activities and circumstances.

In summary, the key points to remember are:

• Establish a clear strategy for outsourcing.
• Translate the mission, vision, and plans of the enterprise into clear objectives.
• Allocate sufficient time for preparation.
• Formulate a clear request with concrete agreements.
• Maintain sufficient in-house knowledge for oversight.
• Recognise risks and determine measures.

For nearly 30 years, Ilfa has been handling treasury activities for third parties. Through our approach, we can perform treasury tasks for enterprises at limited costs after a short implementation period. More explanation about our process will be provided in this article: Treasury as a service ‍and on https://www.ilfa.nl/ilfa-treasury-desk.